From the November 2016 issue of HealthCare Business News magazine
From the provider’s perspective: An overview of strategic alternatives
The most crucial time for a practice to consider seeking investors or selling the practice is in the growth stage, when there is still substantial growth ahead of the company. While it may seem counterintuitive to consider financial options when the company is on an upswing, this is the time when companies can leverage future growth to ensure continued shareholder value creation. It’s also the time in a company’s life cycle where the company will have the most negotiating leverage in structuring a deal with a potential investor or buyer.
Radiology platforms that are well positioned in the market can consider a number of strategic investment and sale options, but they boil down to four main alternatives: sticking with the status quo; merging; seeking a private equity investment; or selling the practice. The first option — sticking with the status quo — minimizes disruption and preserves partner distributions, but presents two main concerns: potential threats from well-capitalized competitors; and limited financial resources to invest in required infrastructure and/or scale the business.
The second scenario is a practice merger with another provider group. This scenario has the potential to build scale, improve competitive positioning and increase access to liquidity options (debt availability, multiple expansion, etc.). Concerns with this option include the challenges inherent in integrating practices and governance issues due to an additional ownership base and limited resources to drive growth strategy (both in terms of financial and human capital).
Scenario three — taking a private equity investment — typically allows for shareholders to take some “chips off the table” while participating in future growth. This also increases resources to accelerate growth strategy (both financial and human capital) and brings additional advisors with guidance and strategic relationships to the table to help drive growth. The most commonly cited concern with private equity investments is discrepancies between the perspectives of legacy and new owners who may have differences in strategic vision and financial return objectives.
The final scenario for consideration is the sale of the practice. This option presents significant shareholder liquidity and premium valuation, offers additional resources to drive practice growth and strengthens a company’s market position from increased scale. It also has potential upside opportunities through stock and/or growth incentives. Challenges in this scenario include a reduction in annual distributions, differences in long-term strategic vision between the buyer and the seller and technical integration issues. A sale also leads to shareholders relinquishing ownership and a transition to an employee model, which requires full alignment of incentives going forward.
